Due diligence when selecting contractors or subcontractors
To reduce exposure to risks it is important to have a thorough grasp of both the capability and financial status of a prospective organisation before appointing them.
Reliance on credit checks involving accounts filed at Companies House can be useful, as can assessments of past track record, but they have their limitations. It is important to understand where the organisation might be exposed to risks through commitments to, or reliance on, third parties, and how secure and well resourced they are given the size of the proposed contract and their other commitments.
The following issues should be evaluated against the proposed scope of works to be undertaken:
- Track record and appropriate references.
- Audited accounts.
- Tax returns.
 Current position
- Main customers (each expressed as a percentage of total turnover to reveal where there may be significant dependencies).
- Current contracts in progress including project programmes and values (to assess where there may be significant overlaps that would put the organisation under pressure).
- Staff resources and CV’S of senior management.
- Organisation chart.
- Current debt position with debt expiry dates.
- Current direct labour resource, including comparisons with previous years.
- Current subcontractors and suppliers.
- Details of current warrantees, guarantees, encumbrances, liens, performance or on-demand bonds or charges held by third parties.
 Future position
- Pipeline work under tender or negotiation.
- Current unaudited annual accounts in progress.
- Proposed subcontractors and suppliers.
 Legal position
- Litigation, claims and other disputes in progress.
- Ownership of intellectual property, patents, licenses and certification required to carry out the work.
- Insurances in place.
- Partnerships or joint ventures with other organisations.
- Ownership of machinery and facilities required to execute the work.
 Technical capability
- Examination of past or current similar work.
- Competency, qualifications and certificates.
- Subcontractor and supplier capability.
- Building Information Modelling (BIM) capability.
- Overall capacity to undertake the work.
- Disaster planning in the event of a catastrophic occurrence such as fire.
 Other indicators
- The cost of performance bonds.
- Reputation in the insurance market.
- Time taken to pay subcontractors and suppliers.
 Step guidance on appointing a contractor:
- Traditional contract: tender.
- Design and build: tender.
- Construction management: tender.
- Management contract: tender.
- Public project: tender.
 Related articles on Designing Buildings Wiki
Featured articles and news
What is Modernism?
Modernist architecture and its many international variations explained.
BRE support Europe-wide strategic heating plans for local and national authorities.
Work set to begin on 'one of America's greatest parks', which will be 10 times bigger than Central Park.
One of our most popular articles - RSHP's Mike Davies writes about the concept design process.
As Cuba mourn the death of Castro, major renovation of this symbolic landmark may be a reflection of the country's fresh start.
How cannabis plants are used to create an alternative building material with plenty of advantages.
What does Mayor Sadiq Khan's first policy statement mean for London's infrastructure?
Bjarke Ingels Group announced as winners of design competition for new residential landmark in Amsterdam.
Designing Buildings Wiki has reviewed a well-designed and researched set of architecture city maps.
Designing Buildings Wiki attended the second annual Building Live conference, tackling the challenges facing construction.